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Posted on Nov 1, 2010

Tuition, Tax Credits and Donating Shares

Tuition, Tax Credits and Donating Shares

by John Vegt, SCSBC Director of Finance  ◊  

Tuition generally pays for about 45% of the cost of school operations. The average tuition in SCSBC schools is $3,300 per student. Under the provision in Canada Revenue Agency Information Circular 75-23, an average of 25% of the cost of education is calculated to be secular for SCSBC schools. Generally, the secular cost per student is determined by taking total operating expenses of education less government grants, capital items included in the expenses, miscellaneous revenues, and the religious portion of education. The resulting difference is the secular cost of education.

As an example, using the average tuition, parents are issued a charitable donation receipt on tuition paid of $3,300 less 25% secular cost for a donation amount of $2,475. At a tax rate of 43.7% the donation represent a reduction of personal income taxes of about $1,090. Therefore, the true cost of tuition is $3,300 less a tax recovery of $1,090 or $2,210.
The BC government does not fund any capital costs for land, buildings or equipment. Therefore, the funds to finance these must come from donations or debt. An estimated $10 million of tax refunds is recovered by SCSBC school parents each year. If parents would donate back their tax savings, a significant part of the school’s capital cost and infrastructure could be financed by their tax refunds. It would put the true cost of education back to the $3,300 tuition per student and still provide for a second tax recovery of 43.7% of $1,090 or $480.

Capital campaign and fundraising goals would be met quickly, and infrastructure costs funded at the same time if all parents chose to take advantage of this option to donate back the tax recovery received.

Another significant and efficient method of donating to schools is to donate shares in public companies. Normally, on disposition of shares, a capital gain tax of about 22% would be paid on any capital gain earned. However, should a person donate the securities directly to the school, Canada Revenue Agency allows a donation receipt to be issued for the fair market value of the shares at the date the shares were donated. At the same time Canada Revenue Agency will deem the cost of the shares to be equal to the fair market value of the shares such that no capital gain tax is paid. The school must receive the shares directly and dispose of it to obtain the funds.

The table at the bottom of this page demonstrates the tax saving of donation securities directly to the school. As we study the numbers we realize that it is much more efficient to donate shares directly to the school rather than cash in the shares and donate the net proceeds. You will save more tax and the school will receive a larger donation.

The Income Tax Act provides for generous tax recoveries in converting a large part of tuition fees to charitable donations and eliminating capital gain tax on donation of shares in public companies. The school rather than the government receives these extra funds as a result; let us, as parents, take advantage of the opportunities provided.

Why not add these two items to your next finance committee agenda?

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